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Wilmington Bust

The state’s premier bank prided itself on personal relationships with local builders. Then it over-extended itself. Now Wilmington Trust is being taken over by an out-of-state concern. Does that mean a new way of doing business?

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The developer slides into a booth in a local brewpub, then begins talking about all that has happened at Wilmington Trust the past few months.

He sketches charts and graphs on the back of a place mat, talking about things like debt coverage ratios and rates of return. His pen flies.

He should know about Wilmington Trust. For more than a decade he, like dozens of other developers and builders have done for decades, relied on the bank to finance his projects. He talks in broad strokes about how the confidence of the early 2000s led ambitious developers, thrilled at the prospect of thousands of baby boomers retiring to Sussex County, to buy farms—3,000-acre properties sometimes—to make into housing developments. He recalls about how it was so easy, with so much growth anticipated, to go to Wilmington Trust for start-up capital. The lending officers there were his friends, partners in his dreams.

He rips the place mat into pieces. “Then the music stopped,” he says. “Developers stopped selling, and their projects became devalued. Suddenly, too few guys were controlling most of the money, and they needed the bank to stand behind them. When they got there, they realized that the tap had been shut off.”

He points to an open space near the restaurant’s bar. “If you put the top 20 commercial real estate developers in Delaware over there right now, stick a javelin through them and shake it all up, I guarantee you that a billion dollars in Wilmington Trust debt will fall on the floor.”

On November 1, Wilmington Trust Corp. agreed to sell itself to M&T Bank, a Buffalo, New York-based institution with extensive operations in the Mid-Atlantic. M&T acquired Wilmington Trust for $351 million in stock at $3.84 a share—a 46 percent discount from the price a few days before, when the bank’s market value was $650 million—and agreed to absorb the $330 million bailout given to Wilmington Trust by the Federal Reserve Bank. Once the transaction is complete—expected by the middle of the year—M&T Bank will acquire and re-name 48 bank locations and a few hundred ATM locations in Delaware.

The New York Times called the purchase “one of the biggest take-unders in recent Wall Street memory.” Everyone from bank stockholders to financial leaders have called it nothing short of a fire sale, a desperate act by an institution unwilling to circle its wagons during hard times. Yet some experts consider the sale a strategic move that will bolster the one sagging component of an otherwise financially sound institution.

No matter how the transaction is analyzed, the once unimaginable has become fact: The shock wave of the recession was strong enough to topple even one of the most solid local institutions.

So what happens now?
 

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